Last night I was on a panel organized by Dealmaker Media on how to make money from the profusion of eyeballs generated by Web 2.0 companies. My co-panelists - Lance Tokuda from RockYou, Joe Hurd from VideoEgg, and Ted Rheingold from Dogster - are addressing this problem every day, as are our portfolio companies Slide and PPLive. Highlights of our discussion follow.
The naive answer to monetizing eyeballs is, of course, to stick advertising in front of them. Consider this, though:
- Eyeballs are like real estate - it's all about location. Eyeballs from the US are very valuable to advertisers, but don't expect to get meaningful ad rates for visitors from Brazil, India or China.
- MySpace (~80% of US social networking traffic, as per Hitwise), Facebook (~10% of US social networking traffic) et al have billions of pageviews per month. But they also have high pageviews per visit, and an advertiser has little interest in paying to show the same ad thrice in three minutes to the same user.
- Social media "engages" the user; engagement is hard to define and quantify, but when I check my Facebook page seven times a day, I know I'm engaged by it. To realize the full revenue potential of this engagement requires an ad model more sophisticated than today: the primary advertisers will be building brands and not buying clicks, and they would prefer a targeted, rich and engaging ad experience that transcends the untargeted CPM banner ads available to them today
- Scale is a prerequisite to serious revenue. You have to be big enough to afford a salesforce and big enough for your sales rep to get attention from advertisers; otherwise, you're stuck with low eCPMs from ad networks.
- Advertisers and ad agencies are conservative. If you want to get more than the penny change in experimental marketing budgets, be prepared to either show a standard IAB ad unit, or get ready for some evangelical selling (as VideoEgg has successfully done).
- Social networks own users, but the widgets which populate so much of a typical MySpace page own the eyeballs of the users. So is the long term play for widget providers is to be next generation, unobtrusive, rich media ad networks for social media? It's not about who owns the user - it's about who owns their wallet :-)
- There's a seemingly inexhaustible supply of ad dollars moving online from TV, print and magazines. Online publishers have their work cut out to keep these dollars from sticking to just a few large hands - Google, Yahoo, MySpace, MSN, AOL and Facebook. Marketers will choose reach over targeting, unless you can achieve hypertargeting - what pet food company will prefer MySpace over Dogster?